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The Empirical Analysis of China Stock Market Based on Fractal Market Theory

Author: GaoLu
Tutor: WangChunLi
School: Dongbei University of Finance
Course: Statistics
Keywords: Efficient Market Hypothesis Fractal Market Theory Hurst exponent R / S analysis Stock market
CLC: F832.51
Type: Master's thesis
Year: 2010
Downloads: 121
Quote: 0
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Abstract

The goal of the development of securities markets is creating a standardized, efficient, competitive markets, and the validity of the securities market is a measure of the distribution of information, an important symbol of the transparency of transactions and the extent of regulation. The traditional capital market theory, the efficient market hypothesis has been dominated by the mainstream, the capital asset pricing model, options arbitrage model is developed on this basis. The efficient market hypothesis that securities prices follow a random walk in an efficient capital market, however, the assumption of the hypothesis is not in line with reality in the securities market, many scholars empirical studies also show that the efficient market hypothesis and can not reflect the characteristics of the market, the price change does not follow a random walk. Fractal market theory holds that capital market prices follow a biased random walk, fractal Brownian motion. Its main contents include: ① when coexistence of investors covering a large number of investment starting point, the market is stable. ② information set involved more in the long run than in the short term the market sensitivity and technical. ③ If an event occurs, the correctness of the basic information, long-term investors in the market may cease trading or transaction in accordance with the short-term information set. The ④ Price reflects a combination of short-term technical trading and long-term basis for evaluation. ⑤ securities regardless of the economic cycle, then there would be no long-term trend. Trading, liquidity and short-term will dominate. Above draw on the basis of the traditional capital market theory, and the course of development of the securities market in China, and ultimately select the fractal market theory of nonlinear science as a research tool, through the use of fractal market theory R / S analysis of China's securities market the empirical analysis. In the process of analysis, founded from the securities market to the August 31, 2010, the Shanghai Composite Index and Shenzhen Component Index return series data. First, a nonlinear empirical test of the return series. Normality test return series, found that China's securities market is not in line with the normal distribution, but showing a spike, thick tail characteristics, and further through the linear correlation test and non-linear correlation test confirmed that China's securities market has nonlinear component. Secondly, after the determination of the nonlinearity of China's securities market, by the R / S analysis of the securities market in China the Shanghai Composite Index and Shenzhen Component Index return series calculated its Hurst index of 0.556 and 0.563, respectively, indicating that the index return series follow fractional Brownian motion, the price changes there fractal. In addition, the calculation of V statistic, drawn on the Shanghai index in China's securities market there is about 310 days a statistics cycle, while the Shenzhen Component Index there is a long-term statistics cycle of about 1100 days. Third, convinced that China's securities market there are fractal structure based on fractal analysis of the overall distribution of China's securities market, determine the characteristic exponent α, the overall distribution of China's securities market is Pareto-Levy fractal distribution family, which Shanghai index day return series overall distribution index α = 1.799, and Shenzhen into about to happen to yield overall sequence distribution characteristic exponent α = 1.776. Finally, the analysis of the impact of the reform of China's securities. Through this research, I believe that the Chinese stock market is a fractal structure, is a typical fractal market statistics cycle.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Financial market
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